Global Markets Trends & Review Week Ending September 27, 2019

Global Markets Trends and Review Week Ending September 27, 2019

  1. Review of global markets starting with the US
  2. Performance chart of world markets
  3. Chart of China Large-Cap (FXI)
  4. Performance chart of major US market sectors
  5. Charts of US market sectors Utilities, Consumer Staples, and Real Estate
  6. Russell 1000 Growth Index vs Russell 1000 Value Index chart
  7. Sector Highlight; Technology
  8. Summary

Overview To Date: Since the December 2018 lows the S&P 500 had rallied about 30%. The S&P 500 made a new all-time high on July 26. After the August correction, the S&P 500 rallied but found resistant just below the July all-time high. Since late August the S&P 500 and other markets have experienced sector rotation and movement out of riskier assets.

What started over two weeks ago as a combination of sector rotation out of growth stocks and profit-taking has continued. There has been clear movement out of riskier assets. S&P 600 small-cap index benefitted from the initial move out of growth stocks but has now become weak relative to the S&P 500 (broad market). The movement from riskier, growth-oriented stocks to value can be clearly seen in Section 6 below “Russell 1000 Growth vs Russell 1000 Value chart”.

The markets have also been bumping up against significant resistance at the July highs.  Since the breakout from the August correction on September 5th, the S&P 500 has traded within a tight range of about 2.5%.

Various long to intermediate-term indicators remain up and indicative of another leg up in the 2009 long-term bull market. Short-term indicators have turned down, indicating some short-term risk and volatility in the markets.

Friday, September 27 was the last full week of the quarter. Any institutional quarterly asset adjustments have pasted until December. Besides ongoing news dramas, Q4 earnings reports are coming to impact the markets.

All world markets listed below were down for the week. The Primary Trend signal is up (green) for seven of the market indexes. The Short-Term Trend Values for six markets are positive.  Continued erosion in the trend values are movement from riskier markets, and concerns over trade talks, and the world economies.

2. Performance comparison of the major world markets to S&P 500:  All of the world markets were down last week. The three down the most were the China Index down 2.69%, Russell 2000 down 2.41% and Emerging Markets (EEM) down 2.33.49%.  The markets have stalled at resistance near the July highs and moved into short-term correction over the last two weeks.

3. China market index (FXI) Bellwether Market.  Continue to watch the China market as a bellwether indicator. Economic and trade news continued to weigh on the China Large-cap Index (FXI) which was down for a second week 2.69%.  After a rally in August, the China index found resistance at the downtrend line and closed back below the 200-Day moving average. A very bearish chart pattern at this point. Next chart support is at the November and December 2018 low of 37. Continued weakness in the China Index impacts the world markets.

4. Relative Performance in the US market sectors: The only sectors up for the week were defensive. Consumer Staples up 1.33%, Utilities up 1.30% and Real Estate up 0.43%. Down the most were Healthcare down 2.90%, Communications down 2.80%% and Energy down 2.69%. A clear movement away from more riskier assets.  See the chart below with Utilities, Staples and Real Estate.

5. Defensive Sectors Utilities, Consumer Staples, and Real Estate:  What started as sector rotation and profit-taking, has become movement into defensive sectors and away from riskier sectors. While most of the market sectors were down for the week, Utilities made a new all-time high, and Staples and Real Estate almost did as well.

6. Russell 1000 Growth Index vs. Russell 1000 Value Index:   Over the last few weeks there has been a rotation from growth to value stocks and assets. This is illustrated in the chart below. The top panel is the S&P 500. Bottom panel compares the Russell 1000 Growth Index to the Russell 1000 Value Index. The drop in the chart shows movement from growth to value. Such a break can indicate a change in the market direction. In Q4 2018 the break in the relationship was confirmed by a decline in the NYSE (New York Stock Exchange) A/D line and other market internals. As we go into Q4 2019, the shift from growth into value is taking place with market internals making new highs. There is a changing market focus by institutions but a market correction in Q4 is not expected.

7. Sector highlight, Technology:  Technology stocks and funds lead the markets both up and down. The Technology Index was down 0.71% from sector rotation and profit-taking and movement out of riskier sectors.  So far Technology remains in its uptrend from the December 2018 lows. Within the Technology sector, the strongest group was Electrical Components & Equipment up 1.58%, and the weakest was Software down 1.91% getting hit from profit-taking.

8. Summary: From the December 24th low, the world markets started a strong rally. The market strength in US markets was confirmed by positive market internals not seen since the low in 2016.  These positive market internals remain in effect. Long to intermediate-term risk signal is ON projecting a continuation of the long-term bull market started in 2009. In March the markets moved into short-term correction mode. After correction over signals, the markets as measured by the S&P 500, rallied to make new all-time highs in July. The markets entered another short-term correction in August. Strong market internals and the S&P 500 closed about 2950, confirmed correction over signals. To confirm the bull market rally, the S&P 500 needs to close above 3025 and make a new all-time high.

Over the last three weeks, there have been profit-taking in growth stocks and apparent movement into less risky assets. The S&P 500 has stalled below the July highs that may take more time before there is a clear breakout to new highs.

Summary of Risk Signals: Long to intermediate-term risk signal is ON. The Intermediate-term risk signal has turned ON. Short-term risk signal has turned down, though probably temporarily. The warning; the US and world markets remain news-driven and can quickly turn negative and selloff by bad news.

The purpose of this newsletter is to identify the primary trend of the major global markets. Good market investment returns are made by investing and trading with the primary market trend. US market internals and worldwide markets trends point to a continued positive investment environment in 2019. Conditions for support for continued uptrend: 1) Federal Reserve continues to be accommodative; 2) improvement in the Chinese economy and continued stimulus; 3) positive resolution of the US/China trade deal; 4) broader participation and strength in the small-caps. 5) No hard BREXIT (British exit from EU) though a hard exit is still a possibility.

Note: the above are not trade recommendations, but possibilities to watch. The market is volatile and can swing sharply.

Posted in Global Markets Trends.